Needham reiterates Semtech stock buy rating on data center growth

Needham has reaffirmed its Buy rating and $200 price target on Semtech Corp. (NASDAQ:SMTC) following the company's impressive fiscal second-quarter 2027 results. The stock, currently trading at $127.52, has experienced a remarkable 117% surge in value over the past year. However, InvestingPro analysis indicates the shares may be slightly overvalued relative to their intrinsic value.

Semtech surpassed expectations with fiscal second-quarter 2027 results exceeding forecasts, and has additionally provided fiscal third-quarter 2027 revenue guidance that outpaces Street estimates. This upward revision is largely attributed to the growing momentum of Data Center and LoRa platforms. The company's strong performance in 800G products, coupled with significant ramps in 1.6T CopperEdge and FiberEdge products, is driving this increased guidance.

Gross margin is expected to see a notable uplift as a result of the Cellular Modules divestiture and favorable product mix. Photonics remains an area of potential growth, with Semtech's expanding customer base for gain chips and CW lasers. LoRa is anticipated to experience a 65% year-over-year growth in fiscal third-quarter 2027, spurred by adoption across various industries.

The $200 price target is based on a 27.5 times multiple of Semtech's forecasted non-GAAP earnings per share for calendar year 2028, which is estimated at $7.35. Semtech's recent fiscal second-quarter results also exceeded Wall Street expectations, with adjusted earnings of $0.71 per share surpassing the analyst estimate of $0.61.

The company's revenue reached $341.9 million, surpassing the forecasted $328.64 million. This marks the tenth consecutive quarter of revenue growth for Semtech, driven by record sales and sustained strength in data center and LoRa products. Analysts have highlighted the company's stronger margins as a crucial factor in its financial success.